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Archive for the ‘Big Government’ Category

The current crisis teaches us that excessive regulation and bureaucratic sloth can have deadly consequences.

Here’s John Stossel’s video with another lesson, explaining that we need more capitalism rather than more government.

This seems like a no-brainer, especially given the wretched economic performance of countries where the government owns or controls the means of production.

But not everyone agrees. The appropriately named Paris Marx wants government to have more power, making the case for nationalization of Amazon in an article for Jacobin.

The government needs to…respond to the needs of people across the country as the pandemic situation deteriorates. The response should be to nationalize Amazon and integrate it with the USPS. …Nationalizing the company would also allow Amazon workers to get covered by the same union as postal workers… Amazon isn’t just an online e-commerce marketplace. …Amazon Web Services (AWS) is a cloud computing platform…the cloud should be placed under public ownership. Taking control of AWS would allow the government to…ensure the cloud platform is serving the public good… We have a rare opportunity to fundamentally alter the economy to serve the needs of people instead of private profit, and it’s time to seize it.

Call me crazy, but if the government takes over Amazon and merges it with the Postal Service, I’m guessing that what emerges will have the inefficiency of the latter rather than the nimbleness of the former.

Just imagine a giant Department of Motor Vehicles (or, on a related note, the government’s track record on teaching kids to drive).

Which is why the U.K.-based Economist warned back in 2017 about the dangers of government-run companies.

Expanded state ownership is a poor way to cure economic ailments. For much of the 20th century, economists were open to a bit of dirigisme. …But in the 1970s economists came to see state ownership as a costly fix to such problems. Owners of private firms benefit directly when innovation reduces costs and boosts profits; bureaucrats usually lack such a clear financial incentive to improve performance. Firms with the backing of the state are less vulnerable to competition; as they lumber on they hoard resources that could be better used elsewhere. …economists saw in the productivity slowdown of the 1970s evidence that an overreaching state was throttling economic dynamism. …State-owned firms pose risks beyond that to dynamism. Government-run companies may prioritise swollen payrolls over customer satisfaction. More worryingly, state firms can become vehicles for corruption, used to dole out the largesse of the state to favoured backers or to funnel social wealth into the pockets of the powerful. As state control over the economy grows, political connections become a surer route to business success than entrepreneurialism.

The good news is that very few politicians are supporting explicit nationalization.

The bad news is that there’s plenty of support for intermediate steps involving cronyism, industrial policy, and various types of direct and indirect subsidies.

Including in the legislation recently approved in Washington (not that anyone should be surprised).

Professor Amit Seru from Stanford and Professor Luigi Zingales from the University of Chicago warn, in a column for the Wall Street Journal, that the U.S. has take a dangerous step on the road to central planning.

The need to help individuals and small firms has provided cover to the largest corporate subsidy program in U.S. history. Under intense pressure from lobbyists, the Cares Act allocates $510 billion to support loans for large businesses. A small chunk of this money ($56 billion) will be used directly by the Treasury to grant loans to airlines and other “strategic” firms (read: Boeing). The Treasury will then confer the rest ($454 billion) to the Federal Reserve to absorb losses the Fed might incur in lending to firms in the private sector. The expectation is that the central bank will leverage this money… This is the largest step toward a centrally planned economy the U.S. has ever taken. And it socializes only losses. Profits, when they come, remain private. …The urgency of the moment facilitated a giveaway to vested interests. Now that the Cares Act is law, policy makers need to find ways to impose restrictions on how the money is deployed. It isn’t only a question of fiscal prudence; the nature of American capitalism is at stake.

In other words, the U.S. is moving in the wrong direction on my “Industrial Policy Spectrum.”

The key unanswered question is whether the government’s new powers will be temporary or permanent.

There’s a legitimate argument for some form of intervention while the crisis in ongoing. But what happens once things go back to normal? Will politicians allow the “creative destruction” of capitalism, or will they use their expanded power to permanently interfere with market forces?

If they choose the latter, there will be less long-run prosperity.

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The crowd in Washington has responded to the coronavirus crisis with an orgy of borrowing and spending.

The good news is that the legislation isn’t based on the failed notion of Keynesian economics (i.e., the belief that you get more prosperity when the government borrows money from the economy’s left pocket and then puts it in the economy’s right pocket).

Instead, it is vaguely based on the idea of government acting as an insurer for unforeseen loss of income.

Not ideal from a libertarian perspective, of course, but we can at least hope it might be somewhat successful in easing temporary hardship and averting bankruptcies of otherwise viable businesses.

The bad news is that the legislation is filled with corrupt handouts and favors for the friends and cronies of politicians. Simply stated, they have not “let a crisis go to waste.”

The worst news, however, is that politicians have plenty of additional ideas for how to exploit the crisis.

An especially awful idea for so-called stimulus comes from House Speaker Nancy Pelosi, who wants to restore (retroactively!) the full federal deduction for state and local tax payments.

Pelosi suggested that reversing the tax law’s $10,000 cap on the state and local tax (SALT) deduction… The cap on the SALT deduction has been strongly disliked by politicians in high-tax, Democratic-leaning states such as New York, New Jersey and California… But most Republicans support the SALT deduction cap, arguing that it helps to prevent the tax code from subsidizing higher state taxes.

I’ve written many times on this issue and explained why curtailing that deduction (which basically existed to subsidize the profligacy of high-tax states) was one of the best features of the 2017 tax reform.

Needless to say, it would be a horrible mistake to reverse that much-needed change.

The Wall Street Journal agrees, opining on Pelosi’s proposal to subsidize high tax states.

Democrats are far from finished using the crisis to try to force through partisan priorities they couldn’t pass in normal times. Mrs. Pelosi is now hinting the price for further economic relief may include expanding a regressive tax deduction for high-earners in states run by Democrats. …In the 2017 tax reform, Republicans limited the state and local tax deduction to $10,000. …Democrats have been trying to repeal the SALT cap since tax reform passed. …Blowing up the state and local tax deduction would…also make it easier for poorly governed states to rely on soaking their high earners through capital-gains and income taxes, because the federal deduction would ease the burden. …Mrs. Pelosi’s remarks underscore the potential for further political mischief and long-term damage as the government intervenes… When Democrats next complain that Republicans want to cut taxes “for the rich,” remember that Mrs. Pelosi wants to cut them too—but mainly for the progressive rich in Democratic states.

Maya MacGuineas of the Committee for a Responsible Federal Budget also denounced the idea.

This is not the time to load up emergency packages with giveaways that waste billions of taxpayer dollars… Weakening or eliminating the SALT cap would be regressive, expensive, poorly targeted, and precisely the kind of political giveaway that compromises the credibility of emergency spending. …Retroactively repealing the SALT caps for the last two years would mean sending a check of $100,000 to the household making over $1 million per year, and less than $100 for the average household making less than $100,000 per year. …During this crisis, the Committee implores special interest lobbyists to stand down and lawmakers to put self-serving politics aside.

By the way, I care about whether a change in tax policy will make the country more prosperous in the long run and don’t fixate on whether the change helps or hurts any particular income group. So Maya’s point about the rich getting almost all the benefits is not what motivates me to oppose Pelosi’s proposal.

That being said, it is remarkable that she is pushing a change that overwhelmingly benefits the very richest people in the nation.

The obvious message is that it’s okay to help the rich when a) those rich people live in places such as California, and b) helping the rich also makes it easier for states to impose bad fiscal policy.

Which is why she was pushing her bad idea before the coronavirus ever became an issue. Indeed, House Democrats even passed legislation in 2019 to restore the loophole.

Professor John McGinnis of Northwestern University Law School wrote early last year why the deduction was misguided and why the provision to restrict the deduction was the best provision of the 2017 tax law.

…the best feature of the Trump tax cuts was the $10,000 cap on the deductibility of state and local taxes. It advanced one of the Constitution’s most important structures for good government—competitive federalism. Deductibility of state taxes deadens that competition, because it allows states to slough off some of the costs of taxation to citizens in other states. Moreover, it allows states to avoid accountability for the taxes they impose. Given high federal tax rates in some brackets, high income tax payers end up paying only about sixty percent of the actual tax imposed. The federal government and thereby other tax payers effectively pick up the rest of the tab. …the ceiling makes some taxpayers pay more, but its dynamic effect is to make it less likely that state and local taxes, particularly highly visible state income taxes, will be raised and more likely that they will be cut.

For what it’s worth, I think the lower corporate tax rate was the best provision of the 2017 reform, but McGinnis makes a strong case.

Perhaps the best evidence for this change comes from the behavior of politicians from high-tax states.

Here are some excerpts from a Wall Street Journal editorial from early last year.

New York Gov. Andrew Cuomo…is blaming the state’s $2.3 billion budget shortfall on a political party that doesn’t run the place. He says the state is suffering from declining tax receipts because the GOP Congress as part of tax reform in 2017 limited the state-and-local tax deduction to $10,000. …the once unlimited deduction allowed those in high tax climes to mitigate the pain of state taxes. It amounted to a subsidy for progressive policies. …The real problem is New York’s punitive tax rates, which Mr. Cuomo and his party could fix. “People are mobile,” Mr. Cuomo said this week. “And they will go to a better tax environment. That is not a hypothesis. That is a fact.” Maybe Mr. Cuomo should stay in Albany and do something about that reality.

Amen.

The federal tax code should not subsidize politicians from high-tax states. Nor should it subsidize rich people who live in high-tax states.

If Governor Cuomo is worried about rich people moving to Florida (and he should be), he should lower tax rates and make government more efficient.

I’ll close with the observation that the state and local tax deduction created the fiscal version of a third-party payer problem. It reduced the perceived cost of state and local government, which made it easier for politicians to increase taxes (much as government subsidies for healthcare and higher education have made it easier for hospitals and colleges to increase prices).

P.S. Speaking of fake stimulus, there’s also plenty of discussion on Capitol Hill (especially given Trump’s weakness on the issue) about squandering a couple of trillion dollars on infrastructure, even though such spending a) should not be financed at the federal level, b) would not have any immediate impact on jobs, and c) would be a vehicle for giveaways such as mass transit boondoggles.

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I wrote about “Coronavirus and Big Government” on March 22 and then followed up on March 27 with “Coronavirus and Big Government, Part II.”

Now it’s time for the third installment, and we’ll start with this hard-hitting video from Reason, which shows how red tape has hindered the development and deployment of testing in the United States.

Next, here are a bunch of stories and tweets about the deadly impact of bureaucracy and regulation.

As with the Part I and Part II, feel free to click on any of the stories for the details.

By the way, the problem of excessive government exists in other nations.

Here are two tweets about the situation in the United Kingdom.

The first one deals with having to get government approval for medical devices.

The second one deals with how politicians and bureaucrats have misallocated public health resources – similarly to some of the foolish misadventures of the FDA and CDC (and let’s not forget the World Health Organization).

I’ll close with another story from the United States.

This report from Reason is especially useful because it contains a 30-minute interview with Professor Alex Tabarrok of George Mason University. So if you liked the short video at the start of this column, you’ll definitely want to click through and watch this video.

The message here isn’t that government shouldn’t exist. As I wrote earlier this month, collective action is appropriate to protect life, liberty, and property. Needless to say, that libertarian principle applies during a pandemic.

But that doesn’t mean government should be micro-managing everything.

In normal times, excessive regulation is a costly nuisance because things cost more and take longer.

In a crisis, however, that means needless death and suffering. Which is exactly what’s happening today.

Let’s hope the folks in Washington learn from this awful experience.

P.S. Another lesson to be learned is the Seventh Theorem of Government.

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Motivated in part by a sensible desire for free trade, six nations from Western Europe signed the Treaty of Rome in 1957, thus creating the European Economic Community (EEC). Sort of a European version of the North American Free Trade Agreement (now known as USMCA).

Some supporters of the EEC also were motivated by a desire for some form of political unification and their efforts eventually led to the 1992 Maastricht Treaty, which created the European Union – along with increased powers for a Brussels-based bureaucracy (the European Commission).

There are significant reasons to think that this evolution – from a Europe based on free trade and mutual recognition to a Europe based on supranational governance – was an unfortunate development.

Back in 2015, I warned that this system would “morph over time into a transfer union. And that means more handouts, more subsidies, more harmonization, more bailouts, more centralization, and more bureaucracy.”

A few years earlier, when many of Europe’s welfare states were dealing with a fiscal crisis, I specifically explained why it would be a very bad idea to have “eurobonds,” which would mean – for all intents and purposes – that reasonably well governed nations such as Germany and Sweden would be co-signing loans for poorly governed countries such as Italy and Greece.

Well, this bad idea has resurfaced. Politicians from several European nations are using the coronavirus as an excuse (“never let a crisis go to waste“) to push for a so-called common debt instrument.

Here are the relevant parts of the letter.

…we need to work on a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all Member States, thus ensuring stable long term financing… The case for such a common instrument is strong, since we are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all. And we are collectively accountable for an effective and united European response. This common debt instrument should have sufficient size and long maturity to be fully efficient… The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system and temporary policies to protect our economies and social model.

Lots of aspirational language, of course, but no flowery words change the fact that “collectively accountable” means European-wide debt and “social model” means welfare state.

I wrote last year that globalization is good whereas global governance is bad. Well, this is the European version.

The Wall Street Journal opined against the concept. Here’s some background information.

Bad crises tend to produce worse policy… We speak of proposals for “corona bonds,” an idea floated as a fiscal solution to Europe’s deepening pandemic. Italian Prime Minister Giuseppe Conte launched the effort, and French President Emmanuel Macron this week joined Mr. Conte and seven other leaders in backing such a bond issue for health-care expenditures and economic recovery. Some 400 economists have joined the chorus. …The bonds would be backed collectively by member governments. The proceeds could be allocated to members such as Italy that otherwise couldn’t borrow from private markets. …Calls for euro bonds last hit a crescendo during the debt crises of 2010-12, when they were pitched to fund bailouts of Greece and others. But the idea has never gone anywhere because it would transform the eurozone into something voters didn’t approve when the currency was created in the 1990s.

And here’s the editorial’s explanation of why eurobonds would be a very bad idea.

Europeans were promised the euro would not become an excuse or vehicle for large fiscal transfers between member states. …Proponents say corona bonds are a special case due to the unfolding economic emergency. But the Italian government that now can’t finance its own recovery was also one of the worst fiscal offenders before Covid-19… Claims that the corona bond would be temporary aren’t credible because European elites have wanted such a facility for years… Voters can assume that if they get these bonds in a crisis, they’ll be stuck with this facility forever. …euro bonds would create profound governance problems. …With corona bonds, German and Dutch taxpayers for the first time are being asked to write a blank check to Italy and perhaps others.

Amen.

Once the camel’s nose is under the tent, it would simply be a matter of time before eurobonds would become a vehicle for bigger government in general and more country-to-country transfers in particular.

Hopefully this terrible idea will be blocked by nations such as Germany, Sweden, and the Netherlands (this satirical video will give you an idea of the tension between the European nations that foot the bills and the ones looking for handouts).

Some advocates for eurobonds say there’s nothing to worry about since the European Commission and related pan-European bureaucracies currently don’t spend much money, at least when measured as a share of overall economic output.

Which is why I sometimes warn my European friends that the United States is an example of why they should be vigilant.

For much of American history, the central government in Washington was very small, as envisioned by the Founders. But beginning with the so-called Progressive Era and then dramatically accelerating under the failed policies of Hoover and Roosevelt, the federal government has expanded dramatically in both size and scope.

The lesson to be learned is that more centralization is a very bad idea, particularly if that centralized form of government gains fiscal power.

That’s especially true for Europe since the burden of government spending at the national level already is excessive. Eurobonds would exacerbate the damage by creating a new European-wide method of spending money.

P.S. While eurobonds are a very bad idea, it would be even worse (akin to the U.S. approving the 16th Amendment) if the European Union somehow got the authority to directly impose taxes.

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Five days ago, I wrote “Coronavirus and Big Government” to highlight how sloth-like bureaucracy and stifling red tape deserve much of the blame for America’s slow response to the crisis.

And I started that column by sharing four points from a previous column on “Government, Coronavirus, and Libertarianism.” I’ll start today’s column by repeating the final observation.

4. The federal government has hindered an effective response to the coronavirus.

Here’s a video from John Stossel documenting the federal government’s clumsy incompetence.

And here are a bunch of stories and tweets that provide additional elaboration.

Feel free to click on the underlying stories if you want to get even angrier about the deadly impact of big government.

The silver lining to all the bad news is that politicians and bureaucrats have been relaxing regulatory barriers.

But will they learn the right lesson and permanently repeal government-created barriers that hinder the provision of health care?

Is it true, as Robert Tracinski wrote for the Bulwark, that “We’re All Libertarians now”?

This talking point has since been taken up by others in a more technically accurate form: there are no libertarians in a pandemic. The idea is that when a crisis hits, everyone suddenly realizes how much they need Big Government. This is a bizarre argument to make about a virus that got a foothold partly because of the corrupt and tyrannical policies of a communist government in China. The outbreak is currently at its worst in Italy, where socialized medicine has not turned out to be a panacea. And it was allowed to get out of control in America because the feds imposed an incompetent government monopoly on COVID-19 testing, blocking the use of better and faster tests developed by private companies. …There has been a surge of emergency deregulation to lift artificial barriers that prevent people from solving problems. …the loosening of federal controls on the private development of diagnostic testing, after the disastrous attempt to centralize it all at the CDC. We’re also seeing the suspension of restrictive licensing requirements on doctors and nurses to allow them to work across state lines, so they can go where the shortages are worst. There has also been a whole series of waivers on restrictions on the transportation and serving of food and beverages in order to help restaurants stay in business and feed their customers by offering curb-side service.

Needless to say, I hope Tracinski is right.

But I worry that the net result of this crisis is that we’ll have more red tape and the CDC and FDA will have bigger budgets.

If you think I’m being too pessimistic, just remember that the Department of Veterans Affairs was rewarded with more money after letting veterans die on secret waiting lists, the IRS was rewarded with more money after persecuting Tea Party groups to help Obama’s political prospects, and the education monopoly endlessly gets rewarded with more money even though student outcomes stagnate or deteriorate.

All as predicted by the First Theorem of Government.

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I’m not an optimist about Europe’s economic future.

Most nations have excessive welfare states and punitive taxes, which is hardly good news. You then have to consider demographic trends such as aging populations (i.e., more people relying on government) and falling birthrates (i.e., fewer future taxpayers).

That’s a very grim combination.

Indeed, this is a big reason why I favored Brexit. Yes, it was largely about escaping an increasingly dirigiste European bureaucracy in Brussels, but it was also about not being chained to a continent with a dismal long-run outlook.

More than one year ago, before there were any concerns about a coronavirus-instigated economic crisis, Vijay Victor, an economist from Szent Istvan University in Hungary, expressed concern about Europe’s fiscal future in a column for the Foundation for Economic Education.

The debt crisis in the Eurozone is getting no better, even in the wake of the new year. The five countries in the Eurozone with the highest debt-to-GDP ratio in the third quarter of 2018 were Greece, Italy, Portugal, Belgium, and Spain. The total debt of Greece is around 182.2 percent of its GDP and that of Italy is 133 percent… Dawdling economic growth coupled with low-yield investment options are dragging these indebted economies toward insolvency… Unemployment rates, for example, are still very high in most of these highly indebted European economies. Despite the recurrent monetary assistance and policy support, job creation is weak, which might imply that the debt financing is channelized in a nonproductive direction.

By the way, I can’t resist taking this opportunity to remind people that debt is a problem, but it also should be viewed as a symptom of en even-bigger problem, which is an excessive burden of government spending.

A bloated welfare state is a drag on economic performance, whether it’s financed by borrowing or taxes.

Though nations that try to finance big government with red ink eventually spend their way into crisis (as defined by potential default).

And we may be reaching that point.

Desmond Lachman of the American Enterprise has authored a very grim assessment, focusing primarily on Italy, for the National Interest.

Today, with Italy at the epicenter of the world coronavirus epidemic, it would seem to be only a matter of time before the durability of the Euro is again tested by another full-blown Italian sovereign debt crisis. …even before the coronavirus epidemic struck its economy was weak while its public finances and banking system were in a state of poor health. After having experienced virtually no economic growth over the past decade, the Italian economy again entered into a recession by end-2019. At the same time, at 135 percent its public debt to GDP ratio was higher than it was in 2012 while its banks’ balance sheets remained clogged with non-performing loans and Italian government bonds. …the coronavirus epidemic will seriously damage both Italy’s public finances and its banking system…by throwing the country into its deepest economic recession in the post-war period. That in turn is bound to cause Italy’s budget deficit to balloon and its banking system’s non-performing loans to skyrocket as more of its households and companies file for bankruptcy. …all too likely that the Italian economy will shrink by at least 10 percent in 2020.

All this matters because the people and institutions that purchase government debt may decide that Italy’s outlook is so grim that they will be very reluctant to buy the country’s bonds (i.e., they’ll be very hesitant about lending money to the Italian government because of a concern that they won’t get paid back).

This means that the Italian government will have to pay much higher interest rates in order to compensate lenders for the risk of a potential default.

So what are the implications? Will Italy default, or will there be some sort of bailout?

If the latter, Lachman predicts it will be huge.

One way to gauge the amount of public money that might be needed to prop up Italy is to consider that over the past decade it took around US$300 billion in official support to keep Greece in the Euro. Given that the Italian economy is around ten times the size of that of Greece, this would suggest that Italy might very well need around $3 trillion in official support to keep Italy in the Euro. …Meanwhile, Italy’s US$4 trillion banking system could very well need at least US$1 trillion in official support to counter the capital flight and the spike in non-performing loans that are all too likely to occur in the event of a deep Italian recession.

For what it’s worth, Lachman thinks a bailout would be desirable.

I disagree. Default is a better choice because it will discipline the Italian government (it would mean an overnight balanced budget requirement since nobody will lend money to the government) and also discipline foolish lenders who thought Italian politicians were a good bet.

Simply stated, we should minimize moral hazard.

I also think it’s worth noting that Italy isn’t the only government at risk of fiscal crisis. Here’s the OECD data for major nations, including a few non-European examples.

Japan wins the prize for the most red ink, though this doesn’t mean Japan is most vulnerable to a default, at least in the short run.

A fiscal crisis is driven by investor sentiment (i.e., when will people and institutions decide they no longer trust a government to pay back loans). And that depends on a range of factors, including trust.

The bottom line is that investors trust the Japanese government and they don’t trust the Italian government.

That being said, I think all of the PIGS (Portugal, Italy, Greece, and Spain) are very vulnerable.

And politicians in Ireland, Belgium, and France should be nervous as well.

I’ll close by sharing some calculations, based on the aforementioned OECD data, showing which nations used last decade’s economic recovery to improve their balance sheets.

Congratulations to Germany and Switzerland for fiscal responsibility, and mild applause for the Netherlands and Sweden.

I’ve highlighted (in red) the nations that were most reckless.

Though keep in mind that you want to look at both the trend for debt (far-right column) and the existing level of debt (the next-to-far-right column). So I’m not overly worried about Australia. Debt is still comparatively low, even though it almost doubled last decade.

But all of the PIGS are in trouble.

So if economic conditions deteriorate in Europe, the fallout could be significant.

P.S. The United Kingdom, like Japan, benefits from a high level of trust – presumably in part because the country paid off enormous debts from the Napoleonic wars and World War II. That being said, the numbers for the U.K. are worrisome, which hopefully will lead to a renewed commitment to spending restraint by Boris Johnson’s government.

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I wrote yesterday how cumbersome bureaucracies and foolish regulations have hindered an effective response to the coronavirus.

This isn’t because governments are run by bad people. Some of them probably are that way, of course, but the real problem is that politicians and bureaucrats are dealing with a perverse incentive system.

They’re largely motivated by power, money, publicity, staffing, and votes.

And that leads to some very unfortunate outcomes, as Betsy McCaughey explained in her syndicated column.

Landing in the hospital on a ventilator is bad. But worse is being told you can’t have one. …learning that the state’s stockpile of medical equipment had 16,000 fewer ventilators than New Yorkers would need in a severe pandemic, Gov. Andrew Cuomo came to a fork in the road in 2015. He could have chosen to buy more ventilators. Instead, he asked his health commissioner, Howard Zucker to assemble a task force and draft rules for rationing the ventilators they already had. …Cuomo could have purchased the additional 16,000 needed ventilators for $36,000 apiece or a total of $576 million in 2015. It’s a lot of money but less than the $750 million he threw away on a boondoggle “Buffalo Billion” solar panel factory.

For what it’s worth, I’m not blaming Governor Cuomo for a failure to buy more ventilators.

In the same situation, I also may have decided that it wasn’t wise to spend $576 million for an event that most people thought was very unlikely.

But I am blaming him for supporting ever-bigger government in New York and getting ever-more involved in things that aren’t legitimate functions of a state government.

That applies to the solar factory mentioned in the article, and it also applies to other vote-buying schemes such as mass transit boondoggles, expanded rent control, and anti-gun snitch lines.

And when he expands the size and scope of state government, he increases the likelihood that there won’t be the energy, expertise, or resources to address problems where government should play a role.

Such as dealing with a pandemic.

Which motivates me to unveil a Seventh Theorem of Government.

In addition to the example of Cuomo and ventilators, there’s also a story from Belgium that underscores how bloated governments are less capable.

But I’ll close by noting the Seventh Theorem is not driven by anecdotes. There’s plenty of academic evidence showing that smaller governments are more competent.

P.S. As suggested by proponents of “state capacity libertarianism,” there is a possible exception to the Seventh Theorem.

Some of the world’s poorest nations have small public sectors – at least according to official measurements. It’s certainly possible, at least in theory, that such countries would benefit if they had larger governments that were capable of providing core public goods.

Indeed, international bureaucracies commonly argue that these countries should increase their tax burdens to provide “financing for development.”

However, the real problem in such nations is rampant corruption, low societal capital, and inadequate rule of law. Which is why it’s not a good idea to generate more money for politicians in those countries.

P.P.S. Here are my other theorems of government.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
  • The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.

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